House prices slide as economy dives

House prices are expected to remain in the doldrums throughout 2009, and a recovery could be another few years away, according to mortgage brokers, lenders and estate agents.

Experts have been noticeably more coy than usual about predicting how house prices will move over the next year, claiming that the range of factors affecting property values is so large that it is difficult to forecast what effect each will have.

Nationwide and Halifax, which both provide monthly property price surveys, have chosen not to issue forecasts for house prices in 2009 in the face of widespread volatility across the market.

Halifax, which recorded a 2.6 per cent decline in average UK house prices in November, does expect the market to remain tough, however.

“As the economic downturn picks up pace and unemployment increases, it’s safe to say there will be further falls in the market,” says Martin Ellis, Halifax chief economist.

Peter Bolton King, chief executive of the National Association of Estate Agents, says there are so many unknown factors at play concerning mortgage lending levels, inflation and unemployment, that house-price forecasting is a minefield.

But some commentators have made predictions. Acadametrics, which compiles the FT’s house price index, expects prices to fall by 10 per cent on average in 2009 as the crisis of confidence among mortgage lenders continues.

Even estate agents have tempered their usual optimism in the face of unrelenting bad news and say property prices in 2009 will continue to fall by anywhere between 3 and 11 per cent.

But there are signs, say some, that 2009 could mark the bottom of the market.

Stuart Law, chief executive of Assetz, believes the low point in the housing market will be seen over the summer, as bargain hunters move in to purchase cheap properties.

Lenders have also pointed out that, as prices fall, the ratio of buying prices to earnings will further reduce, making homes more affordable for first-time buyers.

This should help the lower end of the market, where the effects of the credit crunch are being felt most. Hometrack, the housing market data provider, says the fall in house prices over 2009 will put affordability on a par with the early 1990s. It believes that the total price fall – from the peak of the housing market to the trough – will be 22 per cent.

Estate agents have also reported a slight increase in interest from first-time buyers who have managed to save a sufficient deposit to fulfil mortgage lenders’ strict loan-to-value requirements.

But brokers and economists say that the problems in the housing market are not due to demand, and therefore any uplift in demand will not necessarily bring about its recovery. The problems instead stem from the difficulty that existing and prospective homeowners are experiencing in obtaining affordable credit. So the key factor for house prices will be the extent to which the mortgage market can be unlocked, say experts.

Propertyfinder.com says that if mortgage lending increases to £70bn, prices will drop by 6 per cent. However, if it is limited to £40bn, prices will fall 12 per cent.

Lenders are not expected to be any more willing to relax their criteria for borrowers over the next 12 months, even though interest rates are likely to fall further. The Council of Mortgage Lenders (CML) expects the number of new mortgages issued to shrink by £25bn next year.

Nevertheless, estate agents believe the commitment of the government and the Bank of England to resuscitate the housing market could boost confidence and help to make mortgage finance accessible again.

Rents are also expected to fall, according to Propertyfinder.com, in spite of ongong demand, as a result of the glut of properties available to let from owners who have been unable to sell.

Another factor expected to weigh heavily on the property market is the threat of rising unemployment. The CML believes repossessions will rise to 75,000 next year as homeowners struggle to meet payments.

Those who fall behind with mortgage payments due to a loss of income will be able to obtain help in the form of a mortgage holiday backed by the government. But a climate of job insecurity is likely to result in an even greater loss of confidence among buyers and sellers, and could lead to prices falling faster than they did in 2008, say brokers.

Charles McDowell, a property consultant for wealthy individuals buying in Kensington & Chelsea, Belgravia and Mayfair, says that the prime market is particularly vulnerable to redundancies in the financial sector.

The one light at the end of the tunnel for prices is the UK’s lack of housing supply. Although the effects of the government’s decision to curb plans for new housing developments are unlikely to be felt as early as next year, the contraction in supply cannot be underestimated. It is this scarcity of housing stock that could bring about the end of the housing market slump, say agents, whenever that may be.

http://www.ft.com/cms/s/0/8eb6651e-d8e8-11dd-ab5f-000077b07658.html

Business Financial Services

House prices slide as economy dives